Have you noticed that the dollar is tumbling fast, now down under 81 on the USDX. We expect to see the dollar struggling to hold onto 70 in the next year. What good is it to own a bond or stock that pays interest or dividends of a few percent when the currency you are paid in loses over 10 percent of its value? As more and more people come to this conclusion, the demand for Gold Eagles, Gold Buffalos, Silver Eagles and silver mint boxes will dramatically increase. Will the US mint be able to fill all of the new orders? I doubt it. That is not their track record. When they are overwhelmed with new orders they shut down and stop taking any new orders until the back log is filled, and that can take months.
In today’s Minneapolis Star Tribune, there was a paragraph on Alan Greenspan’s comments on the economy. He said that the economy would fall back into a recession unless the real estate market held up. Is he crazy? “hold up?” The real estate market has a long, long way to go before it bottoms, at least 20% would be my best guess.
Alan Greenspan, former chairman of the US Federal Reserve, has added his weight to warnings that the US economy may be heading for a double-dip recession.
Mr. Greenspan repeated an earlier warning about the risks of an increase in interest rates that could threaten recovery but added: “At the moment there is no sign of that because the financial system is broke and you cannot have inflation if the financial system is not working.”
Hmmm. Greenspan has obviously never studied Weimar Germany or Zimbabwe or any other hyperinflationary collapse. They all share in common that the economy was stalled and the financial system was broke. Pumping money into a system that is lacking productive capacity growth is the fastest way to debase the currency to zero purchasing power!
His comments were seen as a signal that President Barack Obama may have to provide a further economic stimulus, a point echoed by the International Monetary Fund in its report on the US economy.
It looks like QE2 is coming to a Federal Reserve Bank near you! This will ignite the flame under gold!
You won’t find this information in Barrons
Too bad Alan Greenspan doesn’t read Jim Willie. There is no confusion whether the economy is falling and there is even less confusion about what lies ahead in the residential and commercial real estate markets. In case you missed it in yesterday’s blog, here is what Willie wrote about “Leading Indicators” and the next leg down in the housing market.
WEEKLY LEADING INDICATORS
The ECRI and the Conference Board (slightly more prestigious) each run their leading economic indicators. Below is the Weekly Leading Indicator by the ECRI, not in decline but something much worse. The plunge of the WLI means that various measures are looking bad that relate to future increased job growth from increased business investment and increased economic activity. The current WLI is in an alarming decline since May 2010. It stands at a lower level than the autumn months of 2007, when the USFed and the majority of US-based economists missed signals for the last recession. They were very busy back then denying the powerful impact of the mortgage crisis. It was not limited to subprime mortgages, but rather, as the Jackass warned, it turned global in an absolute bond crisis that affected all types of bonds, from sovereign to commercial to junk to municipal. When the Leading Indicators drop, that is bad. US Economic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.
The end to the home buyer tax credit has resulted in a sudden collapse of pending sales. The US Congress threw a hollow bone to the market, with minimal and temporary impact. Price always obeys the Supply & Demand dynamics, eventually. Home prices will fall again, despite the deceptive message of stability achieved. Stability is not a function of time or money discharged. The National Assn of Realtors reported in June that its seasonally adjusted index of sales agreements for existing homes dropped a whopping 30% in May from April, falling to 77.6 from 110.9. The May mark was the lowest dating back to 2001, an indisputable signal of resumption to the housing sector bear market. Home loan refinance demand also fell hard despite near record low mortgage rates under 5%. The US Economy growth from 2002 to 2006 was built upon the housing bubble and mortgage fraud expansion. My forecast in 2007 and 2008 called for near total destruction of the US banking system, an endless housing bear market, and grotesque homeowner foreclosures amidst rampant insolvency, all of which occurred. Next comes another economic recession down leg. When the home sales crash, that is bad. It results in lower housing prices, like night follows day. US Economic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.
Bear in mind that in 2001 and 2002, the clueless cast of economists were all abuzz over the benefits of the Low-Cost Solution from dispatching the US industrial base to China, an historical relocation. The Jackass was not fooled, but rather regarded the move as a 5-year warning of US systemic collapse. Economists missed that signal completely, a simple signal in my view. US-based income was replaced by income derived off the housing & mortgage bubbles. Later, the income was replaced by pure debt, which is failing. My forecast at the time was for economic plague and bank system ruin, as soon as the housing market bubble turned course toward a bust. From 2003 to 2006, the Greenspan Fed along with a parade of deviant economists gave blessing to the US Economic expansion. However, it was built upon the shifting sands of a housing bubble. Dr Housing Bubble puts it well, claiming a real estate Frankenstein was created with a mind focused on the perverse notion that it actually constitutes the economy. The pending home sales are in a plummet. They foretell of falling home prices. The mountains of unsold bank repossessions from foreclosures, properties held in bank inventory, assure a continued home price decline. Low mortgage rates under 5% are doing nothing to revive the housing market. The entire real estate market is broken, without recognition. The appraisal process has entered the picture, laden with foreclosures and short sales (price below seller home equity). Appraisals are the bridge that act like a noose around the neck, attached to a two-ton brick. The appraisal process has halted thousands of sales in the pipeline. The housing decline is set for a powerful resumption, rendering additional damage to the US Economy which depends so tragically upon it, rather than industry. The decline merely took a pause, aided by a tax credit. When the home price decline resumes, that is bad. US Economic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.
The monitor RealtyTrac reported last month over 300,000 foreclosures for the 15th straight month. The May total foreclosure filings rose to 322,920 which is 1% above May 2009. The bank owned property tally meanwhile is skyrocketing. Banks are reluctant to dump inventory on the already bloated housing market, but they are giving up. The Real Estate Owned (REO) inventory hit a record for May and April, with 93,777 properties repossessed by bank and mortgage firm lenders, an increase of 44% from May 2009. All 50 states posted annual increases in REO activity. In no way whatsoever will housing prices rise in such an environment of overburden in bank owned property held on the balance sheets. The REO bulge is the #1 current factor that eliminates any chance of a housing price recovery. The actual reason why bank lending is so reduced and restricted is that most banks are either insolvent or carrying a huge burden of non-performing loans and impaired bonds. When the bank owned property inventory rises, that is bad. Zombie banks are bad. US Economic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.
LOUSY COMMERCIAL FOREFRONT
Commercial property defaults are dreadful and growing exponentially. Witness the crucial sector sheltered from the news for two years. The Hat Trick Letter has consistently warned about the hammer hitting for that entire period of time. Commercial loan portfolios have not been written down for losses yet, even though the property values have plummeted. Rollover refinance loans in the commercial sector are next to impossible anymore. So the banks extend terms and turn into darker zombies that approve fewer loans. Commercial real estate (CRE) is the next tragic chapter in the bursting bubble. Its prices have already fallen by 42%. At peak just three years ago, commercial RE values in the US reached $6.0 to $6.5 trillion. The banks are crippled. Parallel to zombie homeowners with negative equity, are commercial fields creating zombie businesses. The Extend & Pretend actually harms the banks in the future, since the loss would be less if suffered today, but becomes bigger tomorrow. Almost no political will exists to bail out the enormous commercial market. Wall Street does not own their debt. Bank failures, mostly small and regional, have increasingly been tied in recent months to commercial portfolio exposure, as much as residential. Politics enter from a negligence standpoint, as a deep unwillingness pervades the system not to save the consumption craze. When the commercial mortgage delinquencies rise, that is bad. When a bank carries impaired loans and cannot lend, that is bad. US Economic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.
“Because the dollar is the reserve currency of the world, hyperinflating the dollar will be fundamentally different in two ways from all hyperinflations in history. On the one hand, there are tens of trillions of dollar-denominated debt and hundreds of trillions of dollar-denominated derivatives. Given that the ratio of currency to debts and derivatives is tiny, the coming hyperinflation must be necessarily of epic proportions. On the other hand, central banks around the world will fight tooth and nail to support the dollar, so that world financial system does not collapse and that their reserves do not evaporate into the nothingness. Many central banks will choose willy-nilly to support the dollar by inflating their own currencies. Thus, these two powerful forces will drive the dollar in opposite directions. It’s inevitable demise may be swift and sudden, or it may be protracted and painful.” Krassimire Petrov